It’s clear that the Scotland bill won’t satisfy the present Scottish Parliament, even if it were amended as the committee in the outgoing Parliament recommended. Alex Salmond has made amending the bill a key demand from the outset, and emphasised borrowing powers and devolution of corporation tax. The bill already includes borrowing powers, and there has been widespread criticism of the low levels of these set out in the bill (and some criticism of the heavy reliance on the Treasury in any use of those). Amending those provisions would not be difficult, and shouldn’t prove a practical problem. The difficult question remains the ceiling for such powers, and that is hard to establish by any definitive criteria; but it can and should be increased from the present amounts (£500 million for cumulative current spending, unchanged from the 1998 legislation, and £2.2 billion for capital spending; see paragraphs 20-23 of my memo to the Scotland Bill Committee, available HERE, for criticism of that).

But using the bill as a vehicle for devolving corporation tax is much harder. This has not been done before; legally speaking, no-one knows how to do it. In particular, there are big questions about how to apportion tax between different parts of the UK. (The best idea about that comes from the Holtham Commission, and suggests using the proportion of a UK-wide business’s employees based in Wales as the basis for calculating how much of its corporation tax counts as ‘Welsh’. The same principle could be used for Scotland.) There are also serious implications for any sort of fiscal equalisation scheme operating across the UK (something on which I’ve now got some money to do further work). Thinking these issues through is far from straightforward, and it would be in the interests of neither Scottish nor UK governments to rush them. We’re actually not ready to include that in the Scotland bill if that bill were to complete its Westminster passage this calendar year. Even increasing the income tax powers would have curious results, and need to be thought through carefully.

There is also the question of how suitable a vehicle the Scotland bill is for these changes. The bill’s long title is so open that it would allow such changes without problem. But there are serious problems with ‘retrofitting’ bills to function in very different ways to those originally intended. (This was one reason, for example, why the Government of Wales Act 1998 was such a clumsy piece of legislation.) Adding a set of provisions that are self-contained and separate from other parts of the bill is less difficult than some other large-scale amendments, but still far from easy.

To tackle the situation now, and assuming it doesn’t wish to lose the Union by default, the UK Government needs to start by recognising (at least privately) that the Calman process is effectively dead. The original report under-delivered, in the sense that the degree of financial responsibility it conferred fell far short of what the Scottish people seem to want. (I argued how and why that was so in a 2008 book chapter, available HERE.) The Coalition accentuated that, by simply delivering the Calman recommendations as they stood, though taking out two small taxes and adding a Whitehall wish-list of inappropriate micro-controls over devolved powers. It missed the opportunity of developing those recommendations further, as I argued it should HERE. Both Labour and Coalition UK Governments have messed up badly, by taking 21 months to produce a response that now can’t command support of the Scottish Parliament which set up the Commission in the first place. This is a failure of huge scale: the combination of partisan division of the constitutional and financial debate, the way the Commission’s recommendations failed to achieve what the Scottish public want in order to satisfy the Unionist parties or HM Treasury, and the subsequent delays in delivering those, show a comprehensively misconceived UK strategy.

In this context, the UK can’t afford to listen to Conservative voices such as Charles Moore, urging rapid and forceful action in effect to crush the querulous Scots. That would, once again, be to substitute short-term political convenience for getting constitutional politics right. It would also risk forfeiting the democratic legitimacy of Scotland as part of the Union (although that’s also clearly part of what Scots want). Scots want a very substantial degree of self-government, within the Union. The failure to deliver that would suggest a grave lack of political imagination, within what’s supposed to be a ‘flexible’ constitution that can adjust in an evolutionary manner to changing demands.

The new UK response has got to be put together with some haste, but not undue speed. The new Scottish Parliament has a compelling mandate, and to make its case the UK Government has got to show that constitutional debate can produce action not just endless discussions. (Remember: it’s now 3½ years since the Calman Commission was first proposed. The people of Scotland are entitled to wonder whether that sort of debate will ever produce any tangible change.) In doing so, it needs to balance those considerations with the need to ensure that there is an adequate platform for the Unionist position come a referendum. The Unionist position will be lost if, now, the UK Government can’t show that devolution will deliver the sort of extensive autonomy that the Scottish people so clearly want.

The pressure isn’t only on the UK Government, though. So long as the Scottish Parliament doesn’t assent to the bill, that bill should not become law. That means the status quo remains, including powers that the last Scottish Government (and the SNP) advocate be devolved; relatively minor matters like air guns and drink-drive limits, and more substantial ones like some borrowing powers. The Scottish Government will similarly want to secure a Scotland bill, reasonably soon – though it will know it will get to revisit all the shortcomings of both the bill and the process that produced it, at a referendum campaign, an advantage that the UK Government doesn’t have.

In the circumstances, the UK can’t proceed with the Scotland bill as it stands. Pulling the Scotland bill outright would not be a wise move, either, though. It would simply put on hold the delivery of the sort of constitutional change that the people of Scotland so clearly want. But the bill needs to be explicitly put on hold, while the UK Government formulates – or reformulates – what it intends to do. Come the early autumn, it must have a clear plan. That must include a much more ample scheme for enhanced devolution, capable of securing agreement at Holyrood, and which provides the sort of constitutional arrangement that the Scottish people want. The present Scotland bill will form part of that; to the extent the rest needs legislation, that will need to follow later in this Parliament, soon but not immediately. But when he lays out the plan for this, the Scottish Secretary has got to set out a clear timetable, so that by 2014 this model is before Parliament (or better, on the statute book even if not yet in force). There is no room to get this wrong now; the UK has used up all its margin for error already.

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